Opinion
A145014
06-26-2017
In re the Marriage of JACQUELINE and FREDERICK THORNBORROW. JACQUELINE THORNBORROW, Appellant, v. FREDERICK THORNBORROW, Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. FF09472002)
Jacqueline Thornborrow (Jackie) appeals from a judgment on reserved issues following the dissolution of her marriage with Frederick Thornborrow (Fred). The trial court found that Fred breached his fiduciary duty to Jackie by cashing in his 401k retirement plan without advising her beforehand, and awarded Jackie one-half of the penalties and additional taxes incurred as a result of the withdrawal of the 401k plan. The court further found that Jackie received one-half of the benefit of the proceeds of the 401k plan prior to the dissolution of the marriage, and declined to order any additional monetary award for Fred's breach of duty. Jackie contends she is entitled to an award equal to one-half of the withdrawn funds as a penalty for Fred's breach regardless whether she already benefited from the proceeds during the marriage. Alternatively, she argues the trial court's finding that she benefitted from proceeds of the 401k plan was not supported by sufficient evidence. Jackie also claims the trial court abused its discretion in awarding attorney's fees and costs and erred in failing to specify the amount of taxes and penalties Jackie should be awarded.
Following the custom of the parties in their appellate briefing, we refer to the former spouses by their shortened first names. No disrespect is intended.
Finding no error in the trial court's decision, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Jackie and Fred married in October 1999. Jackie had three children from a prior marriage, and the couple had no children during their marriage. They separated in April 2009, and Fred petitioned for dissolution of marriage in September 2009. A judgment of dissolution was filed in September 2012.
In March and April 2014, the trial court held a five-day trial on remaining issues, including disposition of property, spousal support, and Jackie's claim that Fred breached his fiduciary duty in cashing in his 401k plan during the marriage without prior notice to her. Evidence at trial showed the following facts.
Jackie worked for Sun Microsystems (Sun) from 1996 to 2000, when she left her employment to be home with her children. Fred worked for Sun at the time they married. During the marriage, he supplemented his salary by selling stock he acquired before the marriage to pay household bills. Fred was laid off in August 2006 and received a severance package of about 16 weeks' pay. His annual salary before the layoff was around $140,000. He was offered a new job at Sun in December 2006 and began work in January 2007. His new annual salary was about $145,000 or $150,000.
Fred testified that up until 2006, he was barely able to cover the expenses of the household. He explained, "I paid for the full expenses of our marriage in '99, and our honeymoon . . . . I paid for trips and vacations that we had together with the kids. Jackie was always after money for clothing, kids' expenses, after-school activities, baseball. So my salary didn't really cover all the expenses of a family. I used stock to satisfy Jackie's needs for her and her kids."
Credit union statements for March and April 2007 show that Fred received direct deposit payments of $4,064.11 every two weeks. So his take-home pay was about $105,666 annually.
Jackie and Fred temporarily separated for about a year during their marriage. In November 2006, Jackie told Fred to leave the family home on Burnside Court (Burnside residence). At that time, neither Fred nor Jackie was employed. The trial court found they were both "stressed out by their respective financial conditions." Jackie wanted reassurance from Fred that he would continue to pay all the bills related to the Burnside residence, where she continued to live with her children. After Fred moved out, he paid for expenses related to the Burnside residence in addition to his own living expenses. When he moved out, Fred had nothing but "the clothes on [his] back." He rented an apartment for $2,200 per month and had two roommates who paid him a monthly total of $800 for their share of the rent. He had to acquire furniture, a television, appliances, kitchenware, and other household items, and he bought some clothes.
In November 2006, Fred cashed in his 401k plan with JP Morgan, which was then worth $147,836. He did this because he was unemployed and he did not know when he was going to get another job. After withholding for taxes by JP Morgan, Fred received a check for approximately $115,000. He did not advise Jackie that he was cashing in the 401k plan before making the withdrawal. On January 12, 2007, Fred notified Jackie of the withdrawal by email, writing that he "pulled [his] 401k," so continuing to support the Burnside residence (during their separation) was "no problem." Jackie and Fred reconciled in November 2007.
Fred testified, "I was being asked for huge sums of money, as well as paying all the bills on Burnside Court. I was stressed. I didn't know how long the money I had in the bank was going to last. I wanted to try and put money aside once I focused on trying to get a job. The stress of being thrown out of my house, living in a hotel, trying to keep one house running and trying to find a job, I just thought it was the easiest solution at the time, was to cash it in."
At trial, Fred submitted a spreadsheet, Exhibit 37, showing expenses he paid for the Burnside residence and other expenses related to the household during the temporary separation in 2006 and 2007. Jackie hired a forensic accountant, Richard Saso, who offered his opinion that Fred did not need to cash in his 401k plan to pay expenses related to the community. Jackie also apparently submitted spreadsheets to the court regarding Fred's income for November 2006 through May 2007, but these documents do not appear in the appellate record.
Jackie took the position that Fred controlled the family finances while they were married and did not consult her. She argued that during the year of their temporary separation, Fred "went on a wild spending spree," staying in hotels and buying a motorcycle and related equipment. Fred took the position that the proceeds of 401k plan were used to support the community, "to support both parties."
Fred did not deny that he primarily managed the household finances. He and Jackie did not have a joint bank account. Fred testified this was because he did not "trust [Jackie] with finances." When they first married, Jackie had "extreme credit card debt," which Fred paid off. She then built up another balance, which he paid off again. Fred testified, "She didn't seem to respect that credit cards needed to be paid back." Fred also testified that Jackie admitted to him that she had a spending problem. In an email, Jackie wrote to Fred, " 'While I appear very careful to make sure my bills are always paid on time, the amounts do not seem to be going down due to the unexpected needs I do not save for, and again for my frivolous spending. I know I need to cut off all of my unnecessary spending. I also realize I should never have bought the truck.' " (The email was Exhibit 15 at trial, but is not included in the appellant's appendix. Therefore, we cannot say when this email was sent.)
Trial Court's Statement of Decision
The trial court observed that the "case was driven primarily by one issue: the fact that [Fred] withdrew his 401k plan during the parties' separation in November of 2006." The trial court credited Fred's testimony and spreadsheet about his expenses over Jackie's contrary evidence and the forensic accountant's testimony. The court accepted that Fred's expenses for the period November 2006 through October 2007 for mortgage payments, real property taxes, home equity line of credit (HELOC) payments, homeowner's fees, property insurance, medical bills, utility bills, income tax payments, direct payments to Jackie, attorney's fees, and other items totaled $120,882.84. The trial court explained why it found Jackie's forensic accountant unpersuasive. "[I]t appeared to the Court that Mr. Saso did not fully realize that [Fred] was supporting two households from November 2006 through October of 2007 and Mr. Saso's definition of 'expenses related to the community' was also somewhat narrow." In addition, the court noted that Saso never spoke with Fred or reviewed his spreadsheets and accounting. Thus, it appeared to the court "that Mr. Saso was given [by Jackie] very limited information to work with in reaching his conclusions." The trial court further found Jackie's "spreadsheets and accountings [were] suspect based on the assumptions made by [Jackie] regarding some of the entries. For example, [Jackie] counted . . . $30,000 that she gave to [Fred] from the proceeds of [a] lawsuit . . . but did not reflect in her accountings the fact that [Fred] returned the sum of $21,000 to her for use in the litigation to release [her] children's trust fund monies."
The trial court found that Fred wrote checks for $10,000 and $3,000 directly to Jackie and wrote checks totaling $11,000 for attorney fees and expenses related to Jackie's children. We note that the expenditure of $120,882.84 for the 12-month period of separation does not appear to include any payments related to Fred's separate living expenses. Any money he spent from November 2006 through December 2007 for his own rent, furniture, utilities, food, clothes, and entertainment was in addition to the $120,882.84.
An email exchange between Jackie and Fred showed that Jackie gave Fred $30,000 from a lawsuit, but he "kept [the money] to one side for [Jackie's] use."
Regarding the 401k plan, the court found: "[U]nder the pressure of supporting two households and under the uncertain[t]y of his job situation, [Fred] cashed in his 401k plan in November of 2006 incurring significant income tax liabilities and penalties. At that time [Fred] did have some money in the bank and had also taken withdrawals from the HELOC. The Court further finds that [Fred] did not advise [Jackie] that he was cashing in his 401k plan prior to making the withdrawal. In hindsight, the failure to notify [Jackie], in advance, . . . was a mistake and the Court finds a breach of his fiduciary duty to [Jackie] as to his use and management of the community 401k plan. The more important issue to this Court is what [Fred] needs to do to cure this breach of fiduciary duty.
"On January 12, 2007, [Fred] notified [Jackie], by email, that 'I'm happy to run the house for another year, I have the money, I pulled my 401k so running the house is no problem.' The parties reconciled in November of 2007, and at that time [Jackie] was well aware that [Fred] had cashed in his 401k plan. It is clear to this Court that both [Fred] and [Jackie], and [Jackie's] children benefited by the cashing in of the 401k plan . . . . It was a source of funds to [Fred] that allowed him to pay and carry the substantial expenses of two households.
"It is clear to this Court that throughout the parties' marriage and after the separation [Fred] took on the almost sole responsibility and cost of supporting [Jackie's] household and his household. It is clear to this Court, and the Court so finds, that [Jackie] demanded and expected [Fred] to pay almost all of the household expenses after [Fred] left the family residence in November of 2006, and [Fred] met [Jackie's] demands and expectations. It is not just and not equitable for [Jackie] to be paid twice for her share of the 401k proceeds.
". . . The Court understands why [Fred] felt it necessary to withdraw his 401k plan at the time of his action. However, the Court finds that [Fred] should have discussed this action with [Jackie] and obtained her consent. The difficult problem with the 401k withdrawal, besides the lack of prior notice to [Jackie], is the substantial taxes and penalties incurred by [Fred] by withdrawing the 401k plan.
"[Fred] did make some expenditures for the period of November 2006 through October 2007 that are questionable, such as, expenses related to travel and motorcycles. However, during this period of time he also kept two households afloat with very little, if any, assistance from [Jackie]. The Court does not find, as argued by [Jackie], that [Fred] went off on a wild spending spree after he left the family residence in November of 2006. In fact, the Court finds that [Fred] made a good faith effort to use all available funds to support two households and this allowed [Jackie] and her children to live comfortably during this time. However, this does not excuse [Fred] from failing to give advance notice to [Jackie] of his intent to withdraw his 401k plan and does not excuse the questionable decision to incur substantial taxes and penalties for the early withdrawal of his 401k plan."
Based on these findings, the court issued its disposition on the issue as follows: "In order to cure [Fred's] breach of fiduciary duty to [Jackie] regarding his withdrawal of his 401k plan in November of 2006, [Fred] is ordered to pay [Jackie] one-half of the Federal and State income taxes resulting from said withdrawal and one-half of the penalties incurred for the withdrawal. Except as ordered herein, the Court finds that each party received one-half of the benefit of the withdrawal of [Fred's] 401k plan and no further sums are owed by [Fred] to [Jackie] for the withdrawal of the 401k plan."
The trial court found that both parties expended too much time and expense litigating the 401k issue, emphasizing again that the parties reconciled in November 2007 "knowing full well about the prior withdrawal by [Fred] of the 401k plan" in November 2006. The court found that Jackie raised many issues during the pendency of the case that "were an attempt to redo the financial realities and consequences of the marriage and that the raising of said issues, based upon the evidence presented at trial is questionable." The court further found the hiring of a forensic accountant was "overkill and not particularly helpful" to the court because the accountant "did not have a complete picture of the financial circumstances surrounding the parties' separation." The court awarded Jackie $5,000 for attorney's fees and costs related to Fred's breach of fiduciary duty as required by Family Code section 1101, subdivision (g).
In addition, the trial court ordered Fred to pay Jackie $20,000 for attorney's fees and costs under Family Code section 2030.
DISCUSSION
A. Standard of Review
"A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness." (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) "We review factual findings of the family court for substantial evidence, examining the evidence in the light most favorable to the prevailing party." (In re Marriage of Rossi (2001) 90 Cal.App.4th 34, 40.) We review rulings on division of property and imposition of sanctions for abuse of discretion. (In re Marriage of Schleich (2017) 8 Cal.App.5th 267, 276 (Marriage of Schleich).) We review questions of law de novo. (Ibid.) B. Award for Breach of Fiduciary Duty
The Family Code provides that each spouse owes the other spouse a fiduciary duty in the management and control of community assets and liabilities. (Fam. Code, § 1100, subd. (e).) "This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request." (Italics added.)
Under Family Code section 1101, "[a] spouse has a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate, including, but not limited to, a single transaction or a pattern or series of transactions, which transaction or transactions have caused or will cause a detrimental impact to the claimant spouse's undivided one-half interest in the community estate." (Fam. Code, § 1101, subd. (a).)
"Remedies for breach of the fiduciary duty by one spouse . . . shall include, but not be limited to, an award to the other spouse of 50 percent, or an amount equal to 50 percent, of any asset undisclosed or transferred in breach of the fiduciary duty plus attorney's fees and court costs. The value of the asset shall be determined to be its highest value at the date of the breach of the fiduciary duty, the date of the sale or disposition of the asset, or the date of the award by the court." (Fam. Code, § 1101, subd. (g) (§ 1101(g)).)
Addressing the remedies available for a breach of fiduciary duty to a spouse, the Sixth District Court of Appeal recently observed, "Under [section 1101](g), a prevailing spouse is awarded attorney's fees and court costs for the other spouse's breach regarding a community asset, but neither spouse is entitled to more than his or her 50 percent interest in that asset." (Marriage of Schleich, supra, 8 Cal.App.5th at p. 280.)
Here, the trial court awarded to Jackie for Fred's breach of fiduciary duty one-half of the federal and state income taxes and one-half of the penalties incurred as a result of the 401k withdrawal. Jackie contends this award is insufficient. First, she argues she is entitled to an award of one-half of the 401k proceeds regardless whether she already benefited from the proceeds. In the alternative, she argues the trial court's finding that Jackie and her family benefited from the 401k proceeds was not supported by substantial evidence. We are not persuaded.
Jackie's first argument is that the trial court should have awarded her an amount equal to one-half of the 401k proceeds (in addition to the taxes and penalties the trial court did award) because section 1101(g) mandates a 50 percent penalty on the asset transferred in violation of the fiduciary duty. However, Jackie ignores the rest of Family Code section 1101, which only allows a claim "for any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate." (Fam. Code, § 1101, subd. (a), italics added.) Fred does not dispute that he breached his fiduciary duty to Jackie by cashing in his 401k plan without prior disclosure. But Jackie has a claim against Fred only to the extent that the breach resulted in impairment to her interest in the community estate. (Marriage of Schleich, supra, 8 Cal.App.5th at p. 281 ["although the section 1101 remedies may extend to disclosure breaches, they are limited to disclosure breaches that 'result in impairment to the claimant spouse's present undivided one-half interest in the community estate' "].)
In this case, the trial court found that "[t]he difficult problem with the 401k withdrawal, besides the lack of prior notice to [Jackie], is the substantial taxes and penalties incurred by [Fred] by withdrawing the 401k plan." Based on this finding, the court ordered Fred to pay Jackie one-half the federal and state income taxes and one-half the penalties incurred as a result of the withdrawal. Implicitly then, the court determined Fred's breach of fiduciary duty impaired Jackie's one-half interest in the community asset of the 401k plan in the amount of one-half of the taxes and penalties incurred.
On the other hand, the trial court found Jackie already received the benefit of her one-half interest in the net 401k proceeds during the marriage. The court explained that the 401k proceeds were "a source of funds to [Fred] that allowed him to pay and carry the substantial expenses of two households" during the parties' temporary separation in 2006 and 2007. The court rejected Jackie's claim that Fred went on a spending spree for his sole benefit. Instead, the court found that Fred "made a good faith effort to use all available funds [including the 401k proceeds] to support two households and this allowed [Jackie] and her children to live comfortably during this time." Specifically, the court found that "each party received one-half of the benefit of the withdrawal of [Fred's] 401k plan and no further sums are owed by [Fred] to [Jackie] for the withdrawal of the 401k plan." Stated differently, the court found that Jackie suffered no impairment of her one-half interest in the 401k proceeds. Given this finding, the trial court correctly declined to award Jackie an amount equal to one-half of the 401k proceeds under section 1101(g). (See Marriage of Schleich, supra, 8 Cal.App.5th at p. 281 [under section 1101(g), "neither spouse is entitled to more than his or her 50 percent interest in that asset"].)
The trial court found that Jackie knew by mid-January 2007 that Fred had cashed in the 401k and that he intended to use it to "run the house" (i.e., pay for maintaining the Burnside residence in addition to paying his own living expenses), but there is no indication that she argued then that the 401k should be preserved as the community's nest egg.
Marriage of Schleich, supra, 8 Cal.App.5th 267, was filed after the parties completed their briefing. We asked the parties to be prepared to address the case at oral argument.
Jackie's second argument is that trial court's factual finding that she received one-half of the benefit of the withdrawal of the 401k plan was not supported by sufficient evidence. We disagree.
Substantial evidence supports the court's decision. Evidence at trial showed (1) before the temporary separation, Fred's salary had been insufficient to support the Burnside residence and pay related household expenses, and he had to sell stock to supplement his income, (2) when he was laid off, Fred was stressed out about finances, (3) Jackie wanted reassurance that he would continue to support the Burnside residence after he was laid off and during their temporary separation, (4) Fred expended $120,882.84 running the Burnside residence and paying household expenses during the temporary separation, and this amount did not cover Fred's separate living expenses, (5) Fred had to rent an apartment and furnish it during the temporary separation, and (6) Fred's salary at that time was around $150,000, netting $4,064.11 biweekly.
This evidence showed Fred's salary was inadequate to support himself and Jackie and, in turn, supported the trial court's finding that the 401k proceeds were "a source of funds" that allowed Fred "to pay and carry the substantial expenses of two households."
Fred also points out that additional evidence was presented at trial that supported the trial court's decision. For example, he prepared a spreadsheet documenting expenses he paid related to the Burnside residence from November 2007 through October 2008, which he asserts was relevant to show Jackie received her fair share of the 401k funds. The spreadsheet was Exhibit 38 at trial, but it is not included in the appellant's appendix. We agree with Fred that Jackie should have included Exhibit 38 in her appendix. (See Cal. Rules of Court, rule 8.124(b)(1)(B) [an appellant's appendix must contain "any item that the appellant should reasonably assume the respondent will rely on"].) But we do not find Jackie's appendix so deficient that she has forfeited her appellate claims.
On appeal, Jackie questions Fred's credibility and motives. But this argument was for the trial court, and the trial court found Fred credible. "Appellate courts 'do not reweigh evidence or reassess the credibility of witnesses. [Citation.]' [Citation.] Put another way, '[t]he Court of Appeal is not a second trier of fact. . . .' " (In re Marriage of Balcof (2006) 141 Cal.App.4th 1509, 1531.)
In short, substantial evidence supported the trial court's finding that Jackie received one-half of the benefit of the 401k proceeds during the marriage, except for her one-half interest in the additional taxes and penalties resulting from the withdrawal. C. Attorney's Fees and Forensic Accountant's Fees
Jackie next argues the trial court abused its discretion in awarding only $5,000 for attorney's fees (when she incurred over $27,000 in fees) for Fred's breach of fiduciary duty and in failing to order an award to reimburse the forensic accountant. She asserts, "the award appeared to be arbitrarily made without consideration of the work that was done to prepare for and try the breach of fiduciary issue." But the trial court explained that it found both parties spent too much time and expense litigating the issue. In other words, the court found much of the litigation and attorney work was unnecessary and unreasonable. It was within the trial court's discretion to reduce the attorney's fee award on this basis. (See Ketchum v. Moses (2001) 24 Cal.4th 1122, 1137 ["attorney fees may be awarded only for hours reasonably spent", thus discouraging unnecessary or frivolous litigation]; Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 322 ["Ultimately, the trial judge has discretion to determine 'the value of professional services rendered in his [or her] court . . . .' "].)
As we have mentioned, the court noted that the parties reconciled in November 2007 "knowing full well about the prior withdrawal by [Fred] of the 401k plan" in November 2006. The court further found Jackie's accounting "suspect" and her "attempt to redo the financial realities and consequences of the marriage" at trial was "questionable."
As to Jackie's forensic accountant, the trial court found Saso "not particularly helpful" because he "did not have a complete picture of the financial circumstances surrounding the parties' separation." Saso testified that he never spoke with Fred and that there were documents he would have liked to see, but he did not have access to. The trial court did not find Saso's spreadsheets and testimony persuasive on the primary issue of whether the 401k proceeds benefited Jackie. We find no abuse of discretion in the trial court's decision not to award expert fees under the circumstances of this case. D. Amount of Taxes and Penalties
The trial court's statement of decision did not specify the precise amount of taxes and penalties owed to Jackie for Fred's breach of fiduciary duty. Jackie asks this court to specify the amount of the award or remand with instructions to the trial court to do so. She argues that Fred appears to claim that the award should only be one-half of the amount that was initially withheld by JP Morgan at the time the 401k plan was distributed, which was $35,523.25 total. Jackie, on the other hand, contends that the withdrawal placed the parties in a higher tax bracket, such that their total taxes were $83,684 higher than they would have been had Fred not cashed in the 401k plan.
It is not clear why Jackie believes this is Fred's position. She makes this assertion without a citation to the record. --------
During the pendency of this appeal, Jackie filed a motion to enforce the judgment with the trial court, which included a request that the court determine the amount of taxes owed as a result of Fred cashing in his 401k plan. At oral argument, Jackie's attorney informed this court that the trial court declined to rule on Jackie's motion because of this appeal. Fred argues Jackie's request—that we either set the amount of the award or remand the matter to the trial court—is unripe. We agree. The trial court has not yet made a determination of the amount of taxes owed due to Fred cashing in his 401k plan. We will not consider the issue in the first instance, and an order of remand is not necessary. Jackie is free to renew her motion to enforce the judgment. E. Fred's Suggestion for an Award of Attorney's Fees
In his appellate brief, Fred suggests we consider an award of his attorney's fees incurred to respond to Jackie's appeal. To the extent Fred requests an award of attorney's fees, we decline the request. (See Cal. Rules of Court, rule 8.276(a)(3); City of Crescent City v. Reddy (2017) 9 Cal.App.5th 458, 468 ["Because the city has not followed proper procedures for seeking an award of appellate attorney's fees as a sanction, we decline the request for sanctions."].)
DISPOSITION
The judgment is affirmed. Costs are awarded to respondent.
/s/_________
Miller, J. We concur: /s/_________
Kline, P.J. /s/_________
Richman, J.